When buying or selling a property, real estate offers typically come with a series of conditions. These conditions, also known as contingencies, are designed to protect both the buyer and the seller by ensuring certain requirements are met before the sale goes through. They act as safety nets in case things don’t go as planned, providing a clear course of action if specific terms are not fulfilled. In this blog, we’ll take a deep dive into some common conditions you may come across in a real estate offer.
1. Financing Condition
One of the most important conditions for buyers is the financing condition. This condition protects the buyer by making the offer contingent upon them securing a mortgage or other financing within a specified timeframe. If the buyer is unable to obtain the necessary financing to complete the purchase, they can back out of the deal without losing their deposit.
This condition gives buyers the confidence to make an offer without the immediate financial burden of committing to the purchase upfront, and it also protects them from being forced into a deal they can’t afford.
2. Home Inspection Condition
A home inspection condition is common and allows the buyer to have a professional inspection done on the property to check for any hidden issues, such as structural defects, mold, electrical problems, or plumbing concerns.
If the inspection reveals major issues that the buyer wasn’t initially aware of, the buyer has the option to renegotiate the price, request repairs, or back out of the deal altogether. This condition ensures that the buyer is fully aware of the property's condition before finalizing the purchase. Note that an inspection is not a pass or a fail; it is an objective review of the major mechanical and structural components of the home.
3. Appraisal Condition
An appraisal condition protects the buyer and lender by ensuring that the property appraises for at least the agreed-upon sale price. Lenders typically require an appraisal to ensure that the property’s value supports the loan amount.
If the property appraises for less than the sale price, the buyer may need to come up with the difference in cash or renegotiate with the seller. If they can’t reach an agreement, the buyer can walk away from the deal.
4. Sale of Current Home Condition
The sale of current home condition (or SPP - Sale of Purchaser’s Property) allows the buyer to make an offer contingent upon selling their current home. This is common when buyers need to sell their existing property in order to secure funds for the new purchase.
If the buyer’s current home does not sell within the specified timeframe, the buyer can back out of the offer without any penalty. While this condition can make the offer less attractive to sellers, it’s crucial for buyers who may be relying on the proceeds from their current home sale.
5. Home Insurance Condition
The home insurance condition ensures that the buyer can obtain homeowner’s insurance on the property at a price suitable to them. Mortgage lenders generally require insurance to protect the property against potential damages.
This condition is especially important if the property is located in an area with unique risks, such as flood zones or regions prone to wildfires. If the buyer cannot secure affordable insurance, they may have the option to cancel the deal.
6. Due Diligence Condition
A Due Diligence condition is often used when buyers need time to ensure that their plans for the use and enjoyment of the property can be legally permitted or performed at a cost and ability they’re comfortable with.
For example, if it’s critical to a buyer’s use and enjoyment of the property that they can build a 24’ x 36’ garage to house a woodworking shop, they may include a due diligence condition to allow time to seek consent or approval for the construction from the authority having jurisdiction, and to explore the costs associated with such a project.
Conclusion
Conditions are an essential part of the real estate offer process, providing protection and peace of mind for both buyers and sellers. Whether it’s ensuring financing is secured, confirming the property is in good condition, or addressing specific concerns such as insurance or zoning, these contingencies help buyers make informed decisions and avoid costly mistakes.
Before submitting an offer, it’s important to carefully consider which conditions are most relevant to your situation. Working with a real estate agent or lawyer can help you navigate these contingencies and ensure you’re making a sound decision for your investment. By including the right conditions in your offer, you can protect your interests and move forward with confidence.